In a written Parliamentary answer, Public Enterprises Minister Pravin Gordhan stated late last month that State-owned defence industrial group Denel was constantly exploring economically viable new revenue streams as part of its profitable growth strategy, as well as new technologies to grow its business and technology base. Denel is currently suffering from serious shortages of liquidity and requires recapitalisation to be kept going.

Denel’s financial crisis became apparent when the group had to tell its employees in June and July that it could not pay them their full salaries in those months. As it happened, a loan allowed the group to pay full salaries in June, albeit late; for July, it also managed to obtain the funding needed to fully pay its employees, but was only able to announce this about a week before pay day.

Moreover, Denel did not pay over taxes to the South African Revenue Service (Sars) and the unemployment insurance fund (UIF) levies that had been deducted from employees salaries. This was despite the fact that these deductions were shown on employees’ salary slips for June and July. This led to the Solidarity trade union taking the defence group to court to force it to transfer the funds to Sars and the UIF. Late last month, the High Court ruled in the union’s favour and ordered Denel to pay over the money.

The Minister, in his answer, confirmed that the group was implementing a turnaround plan, which had been approved by the Denel board in February and which was “aligned with the expectations of the shareholder – government”. This involved the urgent disposal of noncore assets and entering into strategic equity partnerships for the different divisions of the group.

Regarding Denel’s recapitalisation, government was still considering the amount that would be required. The group had applied for funding from the National Treasury’s contingency reserve. Further funding was sought during the Medium Term Expenditure Framework, he noted.

Gordhan assured that Denel’s diversification would be paid for through self-funding and research and development investments. “No specific additional State funding is foreseen for this technology expansion.”

The group is interested in “both technologies adjacent to its current product portfolio technologies and new ‘green field technologies,” he reported. “Denel continues to and intends to further grow its collaboration with local and international universities and research institutes. Some of the technology and expansion areas being explored include security and cybertechnology solutions, system-of-systems-level integration capabilities, advanced software solutions and an enhanced offering to the South African Police Service.”

He pointed out that Denel was one of only a few companies in South Africa– indeed, it might be the only one – to have Level 5 military systems integration capability. Citing the 2015 South African Defence Review, he noted that the group was a national security asset. Its primary functions were the design, development, manufacture and support of defence matériel. It was also responsible for the “custodianship of assigned sovereign or strategic defence capabilities, technologies and abilities, inclusive of those that may be at risk, the loss of which would threaten South Africa’s required defence capability”, Further responsibilities were the design, development, manufacture and support of “important capabilities”.

(Gordhan’s answer was in response to a series of written questions posed by Democratic Alliance Shadow Public Enterprises Minister Natasha Mazzone.)